Improved Reliability Is the Key to Increased Profits

Construction management efforts typically focus on productivity to control costs. However, the problem is reliability, not production.

Studies reveal that more than 90 percent of the tasks performed on projects finish within the duration assigned to them at the beginning of the project. In contrast, more than 50 percent of the tasks assigned on any given week are finished late. The number one reason is that the task couldn’t start when it was scheduled.

When you can’t start on schedule because the team in front of you has not finished on time, it demonstrates unreliability, which is a killer because it causes significant waste. When contractors can’t start assigned work when scheduled, the contractor ends up with people not working at full capacity. Since this has been an ongoing problem for years, unit prices reflect this situation; therefore, many don’t even realize the magnitude of this waste. Now that the project is behind schedule, the contractors need to speed up. This results in either working overtime or adding people to the project. Both of these situations are likely to add extra costs for the contractor, and those costs don’t include the lost time while waiting to start the task.

Ed Anderson, one of my NCS Radio guests on my New Construction Strategies program, talks about the underlying problem. He calls the waste Chase Up©. Chase Up© is the time you spend chasing people or being chased to ensure everyone does what he or she is supposed to do when it is supposed to be done. The problem is that despite construction supervisors at all levels complaining about spending as much as 50 percent on Chase Up© activities, it doesn’t seem to eliminate the late deliveries. The reason is that chasing people doesn’t address the root cause of the problem. It’s like using an aspirin to cure a headache without worrying about why you have the headache. While late delivery is a headache, it’s not the cause of the problem. To listen to Anderson’s interview on Chase Up©, go to: www.jackstreet.com/jackstreet/WCON.Ande rsonE2.cfm.

To protect themselves from this situation, contractors build contingency into their prices because typically they can’t get a change order for these internal project delays. Over time, this contingency has become part of their standard unit costs. Since contractors believe their true costs are reflected by the job cost reports, they don’t even realize they have inserted a contingency for this waste. After all, this waste occurs on every project, so isn’t this expense a direct cost? The result is it’s difficult or even impossible to get contractors to lower their estimated costs because under current practices, they need the contingency. However, when they learn how to remove this waste, they can decrease their contingency and lower their unit costs. This results in higher profits.

The problem is virtually no one monitors reliability. The focus is on productivity. However, just monitoring productivity can provide misleading information. For example, a plumber is scheduled to finish all under-slab work by the close of business on Thursday so the slab can be placed early on Friday morning. The plumber is 95 percent complete at the close of business, which isn’t too bad from his perspective. However, the slab now can’t be placed on Friday. This has a major impact on all the trades involved with placing the concrete. In this case, the plumber’s productivity is 95 percent, but his reliability is zero. Reliable means you are 100 percent complete when you are supposed to be, or you are not reliable. It’s black and white with no gray area.

Imagine if contractors were paid based on reliability, not production. What if they got paid for a task only when it is on schedule?

Over time, contractor prices have been squeezed to the breaking point. In response, the contractors schedule their work the most efficient way for themselves to minimize their costs. This is without regard to reliability or its impact on the other contractors. Poor reliability increases everyone’s cost and even prevents improvements in productivity. Increased reliability is the solution because it would lower costs and provide more accurate cost figures. Almost a hundred years ago, Henry Ford said the best way increase business is to decrease costs. There is no better way to reduce costs than eliminate waste. The result would be greater contractor profits.

This requires measuring the reliability of all the project’s contractors. If you select contractors with high reliability, project costs will be lower through the elimination of waste. Further, when supervisors can spend less time chasing people because they are more reliable, they can focus on other more productive activities.

How to Increase Reliability
When reliability is measured and everyone is held accountable for his or her own reliability, total project reliability improves. The use of techniques such as pull planning or Last Planner© provide the tools to improve contractor reliability. Collaboration and communication among the people actually performing the work gives those in the trenches an understanding of not only what’s needed from them but also when it’s needed and why. When the individual contractors realize how much time and labor costs they can save by working with other contractors to improve everyone’s reliability, they typically embrace the process with enthusiasm. Those contractors that don’t want to participate in this process should be not be allowed to participate on projects because they hurt everyone.

Pull-planning techniques have appeared under several names, such as the six-week look-ahead scheduling and Last Planner©, to name a couple. Implementing these techniques along with measuring reliability will result in a significant improvement in performance and profitability. If you would like to learn more about this concept, please feel free to contact me for more information.

Further information can be found at www.TedGarrison.com.